A Nobelist on Fiscal Stimulus

Tyler Cowen[1] and Ira Stoll[2] both link to an interview[3] of new-Nobelist Thomas Sargent by Art Rolnick of the Minneapolis Fed. Here is the Nobel Laureate on fiscal stimulus:

In early 2009, President Obama’s economic advisers seem to have understated the substantial professional uncertainty and disagreement about the wisdom of implementing a large fiscal stimulus. In early 2009, I recall President Obama as having said that while there was ample disagreement among economists about the appropriate monetary policy and regulatory responses to the financial crisis, there was widespread agreement in favor of a big fiscal stimulus among the vast majority of informed economists. His advisers surely knew that was not an accurate description of the full range of professional opinion. President Obama should have been told that there are respectable reasons for doubting that fiscal stimulus packages promote prosperity, and that there are serious economic researchers who remain unconvinced.

In my view, economic journalists have largely dropped the ball on this one. From the Wall Street Journal on left, most journalists seem to take the President for his word when he claims widespread agreement on the merits of fiscal stimulus. I think it is pretty difficult to read a sampling[4] of fiscal stimulus papers from the last 5 to 10 years and find anything that resembles a consensus.

Even in the face of more recent[5]academic[6]critiques[7], the Administration seems to have dug in its heels. A top Administration official recently told Roll Call[8] that the new stimulus plan “will indisputably add to economic growth and add to job creation.”

Hopefully Mr. Sargent’s recognition by the Royal Swedish Academy will shed some light on the rather significant “disputes” among macroeconomists regarding fiscal stimulus.

By the way, Tyler calls this interview, “the single most readable link” in his post and “the best introduction to Sargent on policy and method for non-economists.” I agree. Sargent has some very interesting and cogent things to say about the moral hazards of government deposit insurance, the link between the generosity of unemployment benefits and Europe’s problem with long-term unemployment, and the relative merits of the formulaic balanced budget rules of the Maastricht Treaty compared with the simple and “unspoken” balanced budget rules that reigned during the gold standard era. Indisputably interesting stuff.